A new computer system is up and running at HMRC that will allow their data analysts to build a fuller picture of UK taxpayers, and help them identify fraudsters more easily.
The Connect data system has been in development since 2005, when the Inland Revenue was merged with Customs & Excise, and will play a big part in the government’s plans to crackdown on tax evasion and avoidance.
They claim it has already reclaimed £1.5billion in “additional yield” to date, which more than justifies the £45million expenditure on the project to create the unique software.
So, what does it do?
While the Inland Revenue and Customs & Excise were working as separate entities, they each had their own systems for detecting fraud. But while data drawn from the VAT system would highlight VAT fraud and another system would analyse self-assessment tax returns, there was no way to cross-examine the two. This meant if there was a mismatch in the figures submitted via a corporate tax return compared to the trading it claimed underpinned its VAT return – it would easily slip under the radar and not be detected as a potential problem.
The new system, however, draws all this information together to ‘risk assess’ on a broader front. It is even able to absorb information from other government departments, foreign tax organisations and data from the internet such as credit references and online social networking that will help them pinpoint individuals and behaviours that might indicate fraud or evasion activity.
Mike Hainey, head of the risk and intelligence service data analytics team at HMRC explained the system as gathering data around ‘entities’ so it can be analysed in different ways. An individual would be one entity, a family another and a company another.
From the clusters of data gathered, it would be easier to extrapolate someone who was the director of a number of companies, his family connections and, say, the companies that his wife is director of, as well as any family trusts, etc.
“From the pilot, we started spotting certain trends and patterns,” says Hainey. “That made us realise that it was actually delivering a quality product in the area of spotting fraud indicators that we previously hadn’t seen because we were suddenly aligning other data sets that, combined, was telling us a different story.”
So what does this mean for the taxpayer?
Basically, it means there’s nowhere to hide! The new system is the Big Brother of HMRC, watching what we do and how we do it.
The implementation of the system was completed in June 2011 and investigators have just begun “playing” with the tool to see what they can do with it.
Hainey has said: “It’s a constant evolution. We are constantly finding more and more innovative ways to exploit this capability.”
What it means in terms of company accounting is, never has it been more important to employ professionals who can ensure your paperwork is all present, correct, compliant and consistent.
If you want to make absolutely sure your accounts are in order, we offer peace of mind. Give Annette a call on 01922 418111.
And if the thought of the additional costs incurred by an HMRC enquiry are bringing you out in cold sweats, remember to ask Annette about our fee protection service too. Even if your tax return and business records are accurate and the taxman finds no errors, accountancy fees can cost thousands. Make sure you’re covered in advance!
Read more on our tax disputes and investigations services here.